PNM official discusses San Juan Plant at Gila Economic Development Alliance roundtable

SILVER CITY >> Ron Darnell, PNM senior vice president for public policy, spoke on the San Juan Generating Plant at Friday's monthly Gila Economic Development Alliance Roundtable.

"The goal here today is to have a dialogue," Darnell said. "It's a complicated issue."

He said PNM does not sell outside New Mexico, but is focused on being the best utility in the state.

"Since 2012, we have invested more than $3 million in electrical infrastructure in this area, with much of that to update a substation for redundancy," Darnell said. "We spent $700,000 to replace poles and $350,000 to replace lines and transformers.

"Our plan and goals for the company are to be environmentally responsible, have affordable prices and offer a reliable energy source," he said.

The San Juan Power Plant in the Four Corners region has four units, built in the 1970s. PNM owns about half the plant.

When former Gov. Bill Richardson's administration failed to file a state implementation plan, the EPA filed a federal implementation plan, which was estimated to cost $1 billion to implement, Darnell said.

New Mexico and PNM developed a plan that would improve the air quality for less than half the price.

Negotiations involved the Navajo Nation, the Martinez administration, PNM, the New Mexico Environment Department and the EPA.

"We came up with an agreement to retire units 2 and 3 of the San Juan Plant. The EPA agreed," Darnell said "For the third part of the process, we agreed to selective non-catalytic reduction on units 1 and 4."

PNM must obtain permission from the Public Regulations Commission to implement the plan, which includes replacing the energy, partially through using 135 megawatts of nuclear power, which the company already owns at the Palo Verde Nuclear Plant in Arizona.

"Nuclear is emission-free," Darnell said. "We would also bring in 40 megawatts of solar power. PNM is by far the largest owner of solar panels in New Mexico, with one million expected by the end of 2015."

A natural gas-fired plant would provide 177 megawatts of energy, as the "peaking plant," when demand is highest, about 8 percent to 10 percent of the time, usually in the summer heat.

"We are reducing by 30 percent our coal usage overall," he said.

Darnell also noted San Juan is a zero-discharge plant, with no water pollution or water being discharged from its closed system.

"The air quality around the San Juan Generating Plan is rated at No. 2 best in the country by the American Lung Association," Darnell said. "We spent $350 million on scrubbers in the mid 2000s. We will be cutting water usage by half by retiring the two units. Overall, we use only 1.7 percent of state water usage in power production."

Audience member Ted Pressler asked about wind power.

"Although we own wind power, it is not our favorite renewable, because the wind doesn't always blow," Darnell replied. "It's best for off-peak nights, when we don't need it. Our system is most directly impacted by air-conditioning usage. Installed sun-trackers provide better solar-energy production. Wind is cheap, but doesn't match well with what we need."

Peter Burrows, resident, asked if the renewable energy portion of the monthly bill would be reduced with the use of more solar and whether overall the costs would go down.

"Yes, there will be a reduction in the renewable rider," Darnell. "By 2020, our renewable energy portfolio must be 20 percent of our power production."

Infrastructure costs will remain. By the 2020s, production will be primarily by solar and natural gas. The renewable portfolio standards require diversity. PNM opened a geothermal plant near Lordsburg, but "it is very expensive," he said.

Tom Manning, resident, asked about the "omission uncovered in the rate case."

"That was misinformation," Darnell said. "The error in the price of coal was discovered in November before the case was heard. It was $300 million over a 30-year time period.

"The Integrated Resource Planning process group has asked for the least cost portfolio," he said. "We also looked at other assumptions, and the error in the coal cost was made in each comparison. We told all interveners, and they all agreed it was not an issue. In perspective, the cost of the portfolio to increase power will cost $67 million in year one, but it will not hit bills for a number of years.

"The cost to replace coal with natural gas will cost $132 million," Darnell continued. "We said we would bring the cost of nuclear down to $1,071 a kilowatt in the rate case."

That's less than half the nuclear bidding market value of $2,500 a kilowatt. In comparison, 132 megawatts from coal would cost $26 million or $198 per kilowatt.

Prasad Poturri, PNM engineer, pointed out that as energy is available, the company has to take it. "We sometimes can get it at three cents a kilowatt hour, but it costs five cents a kilowatt hour to have a steady supply. The capacity has to be available at all times."

"We're all concerned about rates," said resident Nick Sussillo. "Half a dozen resolutions have been passed by several entities around the state."

Sussillo said Albuquerque is withdrawing support of the rate case. "If 80 percent of the rate base is opposing the case, why are you pursuing it?"

"City councils can pass resolutions," Darnell said. "They are not elected to manage rate cases. You'd have to ask the city councilors that question. I don't think 80 percent of the population would agree with them."

"We project the cost in the stipulation filed with the PRC to be a 7 percent increase," Darnell said. "The federal plan would have required a 15 percent increase, but wouldn't deal with the carbon. With the 7 percent increase, we will also address the carbon issue."